Crude for February delivery
CLG3, +0.00%
swung between gains and losses before settling lower by 11 cents, or 0.1%, at $90.87 a barrel on the New York Mercantile Exchange.

The market saw “very choppy trade” during the session, said Tariq Zahir, managing member of Tyche Capital Advisors.

“Everything is going to be focused on the fiscal cliff,” Zahir said, referring to the package of tax increases and spending cuts set to hit the economy on Jan. 1 unless there’s a budget deal.

Getty Images

Senate Majority Leader Harry Reid in November.

Economists have warned that if a deal isn’t reached in time that the U.S. economy is at risk of slipping into recession. Expectations for a deal were dampened after Senate Majority Leader Harry Reid on Thursday said it “looks like” the U.S. economy will go over the fiscal cliff. Read more: Obama returns to Washington as cliff nears.

“Our feeling is we will get a scaled-down deal,” before the year ends, said Zahir. But he added that the economy may still contract even if Washington crafts a timely agreement, and a recession would “definitely hit” demand for energy products.

“We’re kind of in a holding pattern ... [and] we’ll continue to see that as we go through the end of the year or until some kind of fiscal deal is announced,” he said.

As energy trading settled on Thursday, there were media reports that House Republican leaders have told their members they plan to reconvene the legislative body on Sunday. U.S. stocks pared losses following the report.

The moves came ahead of late Thursday’s report from the American Petroleum Institute on U.S. petroleum supplies covering the week ended Dec. 21. More closely watched data from the Energy Information Administration are due Friday morning.

Analysts polled by Platts expect a 2 million-barrel decline in crude stockpiles on the week. They also forecast a rise of 250,00 barrels in gasoline inventories and a decline of 350,000 barrels in distillate supplies. The data releases were delayed by the Christmas holiday.

The energy market also digested mixed data about conditions in the world’s largest economy.

First-time jobless claims fell last week to one of the lowest levels of the year, while worries about the fiscal cliff could be seen in slide in the Conference Board’s gauge of consumer confidence for December.

Oil rallied nearly 3% on Wednesday, settling just shy of $91 a barrel, on optimism a U.S. budget deal could still be reached by the end of year, as well as on tensions in Iraq that stoked fears of a supply disruption. Read more: U.S. stocks drop as budget talks stall.

President Barack Obama, who cut short his Christmas break in Hawaii, returned to Washington to explore potential next steps in the budget negotiations.

Underscoring the urgency of Washington dealing with the nation’s debt, Treasury Secretary Timothy Geithner said late Wednesday that the federal government would hit the $16.4 trillion debt ceiling on Dec. 31 unless he authorized extraordinary measures — temporary moves that would create $200 billion in “headroom,” according to Geithner. Under normal circumstances, this would last about two months. See: Geithner moves to avoid Dec. 31 debt ceiling

Reuters

Treasury Secretary Tim Geithner gives congressional leaders the news: The government will bump up against the nation’s debt ceiling would on Dec. 31.

Oil futures came under pressure Thursday as the U.S. dollar strengthened during the session. The greenback later turned lower, pulling the ICE dollar index
DXY, -0.19%
to 79.592 from 79.609 late Wednesday.

Prices for dollar-denominated commodities tend to fall on a stronger greenback, as they become cheaper for other currency holders.

Rounding out Thursday’s action in energy contracts, gasoline for January delivery
US:RBF3
turned higher, picking up 1 cent to settle at $2.82 a gallon, while heating oil for the same month
US:HOF3
rose 2 cents to $3.07 a gallon.

The January natural gas
US:NGF13
contract, which expired after Thursday’s close, fell 4 cents, or 1.1%, to $3.35 per million British thermal units. The February contract also fell. It lost 1 cent, or 0.4%, to close at $3.41 per million British thermal units.

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